EXHIBIT 10.18 to Annual Report on
Form 10-KSB of SpectraSCIENCE, Inc.
for the year ended December 31, 1997
SEVERANCE AGREEMENT
THIS AGREEMENT made as of the 21st day of May, 1997, by and between
SpectraScience, Inc., a Minnesota corporation with its principal offices at 0000
Xxxxxxxxx Xxxx, Xxxxx 000, Xxxxxxxxxxx, XX 00000-0000 (the "Company") and
Xxxxxxx X. Xxxxxxx, Xx., residing at 000 Xxxxxxxxx Xxxxx, Xxxxxxxxx, XX 00000
(the "Executive").
WHEREAS, the Company considers the establishment and maintenance of a sound
and vital management to be essential to protecting and enhancing the best
interests of the Company and its shareholders; and
WHEREAS, the Executive has made and is expected to make, due to Executive's
intimate knowledge of the business and affairs of the Company, its policies,
methods, personnel and problems, a significant contribution to the
profitability, growth and financial strength of the Company; and
WHEREAS, the Company, as a publicly held corporation, recognizes that the
possibility of a Change in Control may exist and that such possibility, and the
uncertainty and questions which it may raise among management, may result in the
departure or distraction of the Executive in the performance of the Executive's
duties to the detriment of the Company and its shareholders; and
WHEREAS, Executive is willing to remain in the employ of the Company upon
the understanding that the Company will provide income security if the
Executive's employment is terminated under certain terms and conditions; and
WHEREAS, it is in the best interests of the Company and its shareholders to
reinforce and encourage the continued attention and dedication of management
personnel, including Executive, to their assigned duties without distraction and
to ensure the continued availability to the Company of the Executive in the
event of a Change in Control.
NOW, THEREFORE, in consideration of the foregoing and other respective
covenants and agreements of the parties herein contained, the parties hereto
agree as follows:
1. Term of Agreement. This Agreement shall commence on the date hereof and
shall continue in effect until such time as the Company notifies the Executive
of termination of the Agreement. Notwithstanding the preceding sentence, if a
Change in Control occurs, this Agreement shall continue in effect for a period
of 36 months from the date of the occurrence of a Change in Control.
2. Change in Control. No benefits shall be payable hereunder unless there
shall have been a Change in Control. For purposes of this Agreement, a "Change
in Control" of the Company shall mean a change in control which would be
required to be reported in response to Item 5(f) of Schedule 14A of Regulation
14A promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), whether or not the Company is then subject to such reporting
requirement including, without limitation, if:
(a) Any "person" (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act) becomes a "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly
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or indirectly, of securities of the Company representing 40% or more of the
combined voting power of the Company's then outstanding securities;
provided however, that a certain merger with a company, cMore Inc.,
discussions of which is in progress, is specifically excluded from this
Agreement, provided the Company is the surviving entity of the resultant
merger;
(b) There ceases to be a majority of the Board of Directors comprised
of individuals described in (c) below:
(c) For purposes of this Section 2 "Board of Directors" shall mean:
(A) individuals who on the date hereof constituted the Board of the
Company, and (B) any new director who subsequently was elected or nominated
for election by a majority of the directors who held such office
immediately prior to a Change in Control.
(d) Approval by shareholders of the Company if required, or if not
required, the approval by the Board of Directors, of:
(i) a merger, consolidation, or reorganization involving the
Company where the company is not the surviving company;
(ii) a complete liquidation or dissolution of the Company;
(iii) an Agreement for the sale or other disposition of all or
substantially all of the assets of the Company to any other party
(other than a transfer to a subsidiary of the Company);
in any such cases, which transaction is actually consummated.
(e) Notwithstanding anything contained in this Agreement to the
contrary, if the Executive's employment is terminated prior to a Change in
Control and the Executive reasonably demonstrates that such termination (i)
was at the request of a third party who has indicated an intention or taken
steps reasonably calculated to effect a Change in Control and who
effectuates a Change in Control (a "Third Party") or (ii) otherwise
occurred in connection with, or in anticipation of, a Change in Control, a
Change in Control with respect to the Executive shall mean the date
immediately prior to the date of such termination of the Executive's
employment.
3. Termination Following Change in Control. If a Change in Control shall
have occurred during the term of this Agreement, Executive shall be entitled to
the benefits provided in subsection 4(d) unless such termination is (A) because
of Executive's death or Retirement; (B) by the Company for Cause or Disability;
or (C) by Executive other than for Good Reason.
(a) Disability; Retirement. If, as a result of incapacity due to
physical or mental illness, the Executive shall have been absent from the
full-time performance of Executive's duties with the Company for six
consecutive months, and within 30 days after written Notice of Termination
is given the Executive shall not have returned to the full-time performance
of the Executive's duties, the Company may terminate Executive's employment
for "Disability". Any question as to the existence of Executive's
Disability upon which Executive and the Company cannot agree shall be
determined by a qualified independent physician selected by Executive (or,
if the Executive is unable to make such selection, it shall be made by any
adult member of the Executive's immediate family), and approved by the
Company. The determination of such physician made in writing to the Company
and to Executive shall be final and conclusive for all purposes of this
Agreement. Termination by the Company or Executive of Executive's
employment based on "Retirement" shall mean termination
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with a normal retirement pension in accordance with the SpectraScience,
Inc. Savings and Retirement Plan.
(b) Cause. Termination by the Company of Executive's employment for
"Cause" shall mean termination upon the conviction of the Executive by a
court of competent jurisdiction for felony criminal conduct.
(c) Good Reason. Executive shall be entitled to terminate his
employment for Good Reason. For purposes of this Agreement, "Good Reason"
shall mean, without Executive's express written consent, any of the
following:
(i) the assignment to Executive of any duties inconsistent with
Executive's status or position with the Company, or a substantial
alteration in the nature or status of Executive's responsibilities
from those in effect at any time within 6 months preceding the Change
in Control or at anytime thereafter;
(ii) a reduction by the Company in Executive's annual
compensation in effect at any time within 6 months preceding a Change
in Control or at anytime thereafter;
(iii) the relocation of the Company's principal executive offices
to a location more than fifty miles from Minneapolis, Minnesota or the
Company requiring Executive to be based anywhere other than the
Company's principal executive offices except for required travel on
the Company's business to an extent substantially consistent with
Executive's prior business travel obligation;
(iv) the failure by the Company to continue to provide Executive
with benefits at least as favorable to those enjoyed by Executive
under any of the Company's pension, life insurance, medical, health
and accident, disability, deferred compensation, incentive awards,
stock options, or savings plans in which Executive was participating
at any time within 6 months preceding the Change in Control, the
taking of any action by the Company which would directly or indirectly
materially reduce any of such benefits or deprive Executive of any
material fringe benefit enjoyed at the time of the Change in Control,
or the failure by the Company to provide Executive with the number of
paid vacation days to which Executive is entitled at the time of the
Change in Control; provided, however, that the Company may amend any
such plan or programs as long as such amendments do not reduce any
benefits to which Executive would be entitled upon termination;
(v) the failure of the Company to obtain a satisfactory agreement
from any successor to assume and agree to perform this Agreement, as
contemplated in Section 6;
(vi) any purported termination of Executive's employment which is
not made pursuant to Notice of Termination satisfying the requirements
of subsection (e) below; for purposes of this Agreement, no such
purported termination shall be effective;
(vii) any material breach by the Company of any provision of this
Agreement;
(viii) the insolvency or the filing (by any party including the
Company) of a petition for bankruptcy of the Company, which petition
is not dismissed within 60 days;
(ix) any event or condition described in this Section 3(c)(i)
through (viii) that occurs prior to a Change in Control but which the
Executive reasonably demonstrates either was at the request of a Third
Party or otherwise arose in connection with, or in anticipation of,
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a Change in Control that actually occurs, shall constitute Good Reason
for purposes of this Agreement notwithstanding that it occurred prior
to the Change in Control.
(d) Voluntary Termination Deemed Good Reason. Not withstanding
anything herein to the contrary, if the Change in Control arises from a
transaction or series of transactions which are not authorized, recommended
or approved by formal action taken by the Board of Directors as defined in
Section 2(c) of this Agreement, Executive may voluntarily terminate his
employment for any reason following a Change in Control, and such
termination shall be deemed "Good Reason" for all purposes of this
Agreement.
(e) Notice of Termination. Any purported termination of Executive's
employment by the Company or by Executive shall be communicated by written
Notice of Termination to the other party hereto in accordance with Section
8. For purposes of this Agreement, a "Notice of Termination" shall mean a
notice which shall indicate the specific termination provision in this
Agreement relied upon and shall set forth the facts and circumstances
claimed to provide a basis for termination of Executive's employment.
(f) Date of Termination. For purposes of this Agreement, "Date of
Termination" shall mean:
(i) if Executive's employment is terminated for Disability, 30
days after Notice of Termination is given (provided that the Executive
shall not have returned to the full-time performance of the
Executive's duties during such 30 day period); and
(ii) if Executive's employment is terminated pursuant to
subsections (b), (c) or (d) above or for any other reason (other than
Disability), the date specified in the Notice of Termination (which,
in the case of a termination pursuant to subsection (b) above shall
not be less than 10 days, and in the case of a termination pursuant to
subsection (c) or (d) above shall not be less than 10 nor more than 30
days, respectively, from the date such Notice of Termination is
given).
(g) Dispute of Termination. If, within 10 days after any Notice of
Termination is given, the party receiving such Notice of Termination
notifies the other party that a dispute exists concerning the termination,
the Date of Termination shall be the date on which the dispute is finally
determined, either by mutual written agreement of the parties, or by a
final judgment, order or decree of a court of competent jurisdiction (which
is not appealable or the time for appeal therefrom having expired and no
appeal having been perfected); provided, that the Date of Termination shall
be extended by a notice of dispute only if such notice is given in good
faith and the party giving such notice pursues the resolution of such
dispute with reasonable diligence.
4. Compensation Upon Termination or During Disability. Following a Change
in Control of the Company, as defined in subsection 2(a), upon termination of
Executive's employment or during a period of Disability, Executive shall be
entitled to the following benefits:
(a) During any period that Executive fails to perform full-time duties
with the Company as a result of a Disability, the Company shall pay
Executive the full compensation of the Executive in effect at the
commencement of any such period, until such time as the Executive is
determined to be eligible for long term disability benefits in accordance
with the Company's insurance programs then in effect.
(b) If Executive's employment shall be terminated by the Company for
Cause or by Executive other than for Good Reason, Disability or Retirement,
the Company shall pay to Executive
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his full base salary through the Date of Termination at the Rate in effect
at the time Notice of Termination is given and the Company shall have no
further obligation to Executive under this Agreement.
(c) If Executive's employment shall be terminated by the Company or by
Executive for Disability or Retirement, or by reason of death, the Company
shall immediately commence payment to the Executive (or Executive's
designated beneficiaries or estate, if no beneficiary is designated) of any
and all benefits to which the Executive is entitled under the Company's
retirement and insurance programs then in effect.
(d) If Executive's employment shall be terminated (A) by the Company
other than for Cause, Retirement, or Disability; or (B) by Executive for
Good Reason; then Executive shall be entitled to the benefits provided
below:
(i) The Company shall pay Executive the Executive's full
compensation through the Date of Termination at the rate in effect at
the time the Notice of Termination is given.
(ii) In lieu of any further salary payments for periods
subsequent to the Date of Termination, the Company shall pay a
severance payment (the "Severance Payment") equal to one year of the
Executive's full compensation as defined below. For purposes of this
Section 4, compensation shall mean and include (A) every type and form
of compensation paid to Executive by the Company (or any corporation
("Affiliate") affiliated with the Company within the meaning of
section 1504 of the Internal Revenue Code of 1986, as may be amended
from time to time (the "Code")); (B) such compensation is includible
in Executive's gross income for federal income tax purposes, but
excluding compensation income recognized as a result of the grant of
restricted stock or other share grants, or the exercise of stock
options or sale of the stock so acquired and (C) the highest rate of
compensation in effect at any time within six months prior to the
Change in Control or within six months prior to the Date of
Termination. The Severance Payment shall be made in a single lump sum
within 30 days after the Date of Termination.
(iii) For a period of 18 months after the Date of Termination,
the Company shall arrange to provide at its sole expense Executive
with life, accident and health and dental insurance benefits
substantially similar to those which the Executive is receiving or
entitled to receive immediately prior to the Notice of Termination.
The cost of providing such benefits shall be in addition to (and shall
not reduce) the Severance Payment. Benefits otherwise receivable by
Executive pursuant to this paragraph (iii) shall be reduced to the
extent comparable benefits are actually received by Executive during
such period, and any such benefits actually received by Executive
shall be reported to the Company.
(iv) For a period ending on the earlier of twelve months from the
Executive's Date of Termination and the date on which the Executive
obtains subsequent full time employment, the Company shall make
available to the Executive such outplacement services that are
generally consistent with the Executive's status or position.
(v) The Company shall ensure that the Executive continues to have
complete coverage for fiduciary, liability insurance, and directors
and officers insurance for a period of six years after a Change in
Control; and will indemnify the Executive of any losses that might
result from actions taken in good faith before the Date of
Termination.
(vi) Except to the extent such payment would constitute a
"parachute payment" within the meaning of Section 280G(b) (2) of the
Code as determined under paragraph (v)
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below, the Company shall also pay to Executive all legal fees and
expenses incurred by Executive as a result of such termination
(including all such fees and expenses, if any, incurred in contesting
or disputing any such termination or in seeking to obtain or enforce
any right or benefit provided by this Agreement).
(vii) The Severance Payment shall be reduced and offset by the
amount of any payment received or to be received by Executive in
connection with the termination of employment pursuant to the
provisions of any Company policy on severance or any successor to such
policy. If, in the opinion of tax counsel selected by the Company and
acceptable to Executive, the Severance Payment (in its full amount or
as partially reduced, as the case may be) plus all other payments or
benefits which constitute "parachute payments" within the meaning of
Section 280G(b) (2) of the Code exceeds the amount that is deductible
by the Company by reason of Section 280G, and in the opinion of such
tax counsel, the Severance Payment (in its full amount or as partially
reduced, as the case may be) plus all other payments or benefits which
constitute "parachute payments" within the meaning of Section 280G(b)
(3) of the Code are not reasonable compensation for services actually
rendered or to be rendered, within the meaning of Section 280G(b) (4)
of the Code, the Severance Payment shall be reduced by the excess of
the aggregate "parachute payments" to be paid to or for the Executive
over the aggregate "parachute payments" that would be paid to or for
the Executive without any portion of such "parachute payments" not
being deductible by reason of Section 280G of the Code. The value of
any non-cash benefit or any deferred cash payment shall be determined
by the Company in accordance with the principles of Sections 280G(d)
(3) and (4) of the Code.
(viii) If it is established pursuant to a final determination of
a court or an Internal Revenue Service proceeding that,
notwithstanding the good faith of Executive and the Company in
applying the terms of this subsection (d), the aggregate "parachute
payments" paid to or for Executive's benefit are in an amount that
would result in any portion of such "parachute payments" not being
deductible by the Company or its Affiliates by reason of Section 280G
of the Code, then Executive shall have an obligation to pay the
Company upon demand an amount equal to the sum of (A) the excess of
the aggregate "parachute payments" paid to or for the Executive's
benefit over the aggregate "parachute payments" that would have been
paid to or for the Executive's benefit without any portion of such
"parachute payments" not being deductible by reason of Section 280G of
the Code; and (B) interest on the amount set forth in clause (A) of
this sentence at the applicable federal rate (as defined in Section
1274(d) of the Code) from the date of Executive's receipt of such
excess until the date of such payment.
(e) Executive shall not be required to mitigate the amount of any
payment provided for in this Section 4 by seeking other employment or
otherwise, nor shall the amount of any payment or benefit provided for in
this Section 4 be reduced by any compensation earned by Executive as the
result of employment by another employer or by retirement benefits after
the Date of Termination, or otherwise except as specifically provided in
this Section 4.
(f) Executive shall be entitled to receive all benefits payable to the
Executive under the SpectraScience, Inc. Savings and Retirement Plan, or
any successor of such Plan and any other plan or agreement relating to
retirement benefits, which shall be in addition to, and not reduced by, any
other amounts payable to Executive under this Section 4.
(g) Executive shall be entitled to exercise all rights and to receive
all benefits accruing to Executive under any and all Company stock
purchase, restricted stock grant and stock option plans or programs, or any
successor to any such plans or programs, which shall be in addition to, and
not
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reduced by, any other amounts payable to Executive under this Section 4. In
addition, all of Executive's outstanding but unvested options shall vest
immediately prior to a Change in Control.
5. Funding of Payments. In order to assure the performance of the Company
or its successor of its obligations under this Agreement, the Company may
deposit in trust an amount equal to the maximum payment that will be due the
Executive under the terms hereof. Under a written trust instrument, the Trustee
shall be instructed to pay to the Executive (or the Executive's legal
representative, as the case may be) the amount to which the Executive shall be
entitled under the terms hereof, and the balance, if any, of the trust not so
paid or reserved for payment shall be repaid to the Company. If the Company
deposits funds in trust, payment shall be made no later than the occurrence of a
Change in Control. If and to the extent there are not amounts in trust
sufficient to pay Executive under this Agreement, the Company shall remain
liable for any and all payments due to Executive. In accordance with the terms
of such trust, at all times during the term of this Agreement, Executive shall
have no rights, other than as an unsecured general creditor of the Company, to
any amounts held in trust and all trust assets shall be general assets of the
Company and subject to the claims of creditors of the Company. Failure of the
Company to establish or fully fund such trust shall not be deemed a revocation
or termination of this Agreement by the Company.
6. Successors; Binding Agreement.
(a) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to expressly
assume and agree to perform this Agreement in the same manner and to the
same extent that the Company would be required to perform it if no such
succession had taken place. Failure of the Company to obtain such
assumption and agreement prior to the effectiveness of any such succession
shall be a breach of this Agreement and shall entitle Executive to
compensation from the Company in the same amount and on the same terms as
he would be entitled hereunder if he terminated his employment for Good
Reason following a Change in Control, except that for purposes of
implementing the foregoing, the date on which any such succession becomes
effective shall be deemed the Date of Termination.
(b) This Agreement shall inure to the benefit of and be enforceable by
Executive's personal or legal representative, successors, heirs, and
designated beneficiaries. If Executive should die while any amount would
still be payable to Executive hereunder if the Executive had continued to
live, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to the Executive's designated
beneficiaries, or, if there is no such designated beneficiary, to the
Executive's estate.
7. Notice. For the purpose of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered or certified mail, return receipt requested, postage pre-paid,
addressed to the last known residence address of the Executive or in the case of
the Company, to its principal office to the attention of each of the then
directors of the Company with a copy to its Secretary, or to such other address
as either party may have furnished the other in writing in accordance herewith,
except that notice of change of address shall be effective only upon receipt.
8. Miscellaneous. No provision of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in writing
and signed by the parties. No waiver by either party hereto at any time of any
breach by the other party to this Agreement of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or similar time. No agreements or representations, oral
or otherwise, express or implied, with respect to the subject matter hereof have
been
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made by either party which are not expressly set forth in this Agreement. The
validity, interpretation, construction and performance of this Agreement shall
be governed by the laws of the State of Minnesota.
9. Validity. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.
SpectraSCIENCE, Inc. AGREED TO AND ACCEPTED:
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Xxxxx Xxxxxxxxx, Director Xxxxxxx X. Xxxxxxx, Xx.
Vice President of Development
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Xxxxxxxxx Xxxxxx, Director
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